your argument holds with b6 (perhaps due the the nascent state of the program), but for both aa and wn, you've omitted relevant contextual information. in both cases, the costs associated with their obligations to provide free travel are recorded as liabilities. this is quite different from saying the programs themselves are recorded as liabilities.

Like what type of contextual information? They all pretty much say the same thing and you can go look it up yourself, Annual Reports are avaliable to the public for free over the internet. For AA and WN, they have it in their investor relations section. Freqent Flyer programs are nothing more than a marketing tool and should never be counted as a asset. Information was omitted because I felt that this is a jetBlue forum so theres really no need to go into great details on what other program do. What sources do you have that states that freqent flyer programs are assets? I included page numbers so you can go and look for those information.

Here's what American Airlines say (partial, the other texts were the history beind AAdvantage, numbers/figures, and even more detail on the whole program but this portion pretty much sums it up):

The company's total liability for future AAdvantage award redemptions for free, discounted or upgraded travel on American, American Eagle or participating airlines and unrecognized revenue from selling AAdvantage miles to other companies was approximately $1.2 billion (and is recorded as a component of Air traffic liability in the consolidated balance sheets), representing 18.8 percent and 16.2 percent of AMR's total current liabilities, at December 31, 2003 and 2002, respectively.

You can go look up WN's whole thing on Rapid Rewards... its on their website. Its basically says the same thing but worded differently and instead of AAdvantage, its RapidRewards.

I don't have time to dissect every carrier's annual report, but I'm willing to probe one example in greater detail. Following is the the snippet you pulled from the AMR annual report in (itallicized) context.

"The Company’s total liability for future AAdvantage award redemptions for free, discounted or upgraded travel on American, American Eagle or participating airlines and unrecognized revenue from selling AAdvantage miles to other companies was approximately $1.2 billion (and is recorded as a component of Air traffic liability in the consolidated balance sheets)"

What's significant about the context you failed to include is that it describes exactly what is recorded as a "component of air traffic liability."

As for the question of whether or not frequent flyer programs should be categorized as assets or liabilities, my only contention is that it isn't that simple. Loyalty programs are awash with red and black components many of which happen to be very difficult to value. Methinks it best not to generalize about such matters.

And why isn't the 'and is recorded as a component of Air traffic liability in the consolidated balance sheets' itallicized? That too was actually in the annual report. As for what is components of Air traffic liability, you can just look it up yourself. I was just pointing out that frequent flyer programs are liabilities and not a assets.

The program itself could never be accounted for as an asset on a balance sheet. The outstanding mileage balance in customer mileage accounts is a liability. There would be revenue for each given revenue period for any miles/points sold to partners, though. The overall value of a program has to encompass both of these, plus a value for the goodwill achieved by having the program and a value assigned to the database of frequent customers.

It's also worth noting that the liability is a rather long-term view, whereas for most programs there is significant short-term income generated all the time from sale of miles to credit cards, hotel programs and other such partners.

I would think the revenue generation plus goodwill plus database would more than offset the liability of outstanding miles for most programs, which is why they persist. But you won't see this valuation on an accounting report. For those you'd only see the accounting for any income from the sale of miles and the liability of the mileage balances, broken up and added to separate parts of the report.

The mistake here would be confusing that liability entry for the points/miles outstanding with the value of the entire program.

Thank you, CrazyOne, for articulating in one sentence the point I was trying to make.

Skater: The reason I didn't itallicize the rest of the quote is because that's what you provided us to begin with. I was merely trying to highlight the CONTEXT from which you pulled the text in question.

and thats the point i was trying to make. I was just laying out the text that says that because I was under the impression that you believe that it was an asset. So sorry for the misunderstanding... now wasnt that debate fun hehe. :D

But I think what CrazyOne meant was that strategically it is an "asset" in that it helps the business than it hurts the business (as a liability does).

You are right that in accounting terms many aspects of an FFP are liabilities because they are things that the assets "pay" for (so that at the bottom line the assets equal the liabilities). However, in accounting terms, cash is a liability too. Because cash is also "paid" for by the airline's assets. But it would be wrong to conclude that since cash is an accounting liability, cash is bad for airlines, and that airlines should try to do away with their cash.

edited for clairification

During the few days that this discussion settled down, I stumbled across a similar debate in the AA forum:

http://flyertalk.com/forum/showthrea...7&page=2&pp=15

How fun! Looks like we started a trend hehe.

Actually, I think they probably get that honor. The debate in the thread I referenced was actually a revival of this one from February:

http://www.flyertalk.com/forum/showt...ght=AAdvantage

Now back to the original topic of this trend... Maybe jetBlue should redo TrueBlue so that if you earn 100 points, you can either spend the points on 1 ticket anywhere or 2 tickets on a flight that would normally be counted as 2 points each way. (ie: OAK to LGB / JFK to Upstate New York)

TrueBlue has been compared to Southwest on this trend... has anyone taken look at the new Independence Air freqent flyers program, ClubI? After looking at it, I dont know what to think... its similar to TrueBlue and RapidRewards but instead of rewarding you for how often you fly, it rewards to how much you spent for your ticket within one year and the reward is weird... 1 reward = any flights less than 1500 miles or 50% off ticket or 2 reward = to anywhere they fly. to get 1 reward, you need to spend $1,500... whereas on Southwest and jetBlue, 1 reward means you can go anywhere the airline flies.

Basically what I'm trying to say that for a flyer like me, I could earn more rewards with jetBlue than with Independence Air. (Indepence Air was formally ACA) Also is Indepence Air trying to be like jetBlue? Their A319 will have leather seats, 20 channels of DirecTV, and if you take a look at their website, their reservation thing look just like jetBlue's but the color is different. Also they will be using A319 and Regional Jets vs JetBlue's A320 and Embraer 190s combo (in the near future).

Ok, I take back that statement before it turned into another debate hehe...

I agree ... I think they are completely trying to mock jetBlue in every way shape and form. The web site totally looks the same. :-)

I personally think Independence Air's FF program is even worse than trueBlue. One of the (few) good things about trueBlue is that you can rack up 24 points for a round-trip transcon than may have cost you only $180 during some of the sales they have. That's almost a quarter of a ticket. It seems that if Independence you have fly (and pay) a lot more to get to that level. Plus, since everything expires after 1 year, you have to fly, pay much more frequently.

I dunno, they are both messed up. :rolleyes:

I realize that FF programs are games we all like to play and we especially like them because we feel we get something for nothing (or almost nothing).

I wonder if anyone dissatisfied with TrueBlue has added up the financial savings they get each trip by flying B6, put that money in a special account, and then just bought a ticket on the "award" trip they were interested in.

I see this all the time - that's what the "incentive" business is all about. Getting you to buy something you don't really want or need or pay more than you should for something you do want in order to get the incentive. The psychological factor is enormous.

Next time you have a trip on B6, find out what it would cost on a competitor and deposit that difference in a special account or keep a special ledger. I'll bet you will be amazed.